Ag land values soaring

All S.D. regions see double-digit increases, but northeast strongest

All S.D. regions see double-digit increases, but northeast strongest

June 22, 2007|By Sarah Ottney, American News Writer

South Dakota's agricultural land values increased 14.4 percent from 2006 to 2007, the same as last year, according to South Dakota State University's annual Farm Real Estate Market Survey, released earlier this month. The rate of increase tied for third highest in the 17 years the survey has been taken. The record high increase was 20.2 percent from 2004 to 2005. Second highest was a roughly 17 percent increase from 2003 to 2004, said Larry Janssen, professor of economics at SDSU and one of the report's authors. The report found the average value of agricultural land varies from $285 per acre (up from $256 per acre in 2006) in the northwest region to $1,946 per acre (up from $1,643 per acre) in the east-central region, with a statewide average of $850 per acre (up from $743 per acre). The increase of $107 per acre in the value of all agricultural land statewide is the second highest annual dollar-per-acre increase in the past 17 years. Brown, Campbell, Edmunds, Faulk, McPherson, Potter, Spink and Walworth counties are included in the north-central region. Day, Marshall and Roberts counties are included in the northeast region. The average value in the northeast region is $1,422 per acre (up from $1,174 per acre in 2006), and in the north-central region, $945 per acre (up from $849 per acre). The survey is based on reports, ending in February, from 214 agricultural lenders, Farm Service Agency officials, rural appraisers, assessors, realtors, professional farm managers and Extension agricultural educators. Agricultural land values increased at double-digit rates in all eight regions. The strongest increase - 21.1 percent - came in the northeast region, followed by the east-central region with an 18.4 percent increase. The other six regions increased between 11.3 percent and 12.8 percent. The north-central region increased 11.3 percent. Overall, agricultural land values in the state have doubled since 2002 and tripled since 1996. In each region, per acre values are highest for irrigated land, followed in descending order by nonirrigated cropland, hayland or tame pasture and native rangeland. Cropland values have been increasing slower in the western and south-central regions compared to land east of the Missouri River, but despite the high drought indexes west of the river, land values still went up, Janssen said. "It shows the strengths of other factors," Janssen said. "It wasn't enough to really bring everything down. It remained positive, just at a slower rate." Trends: Percentage rates of change from one year to the next are important, but what happens over a cluster of years is the more important story, Janssen said. Janssen said the 14.4 percent increase in land values came in right at the average increase of the past six years. "Two years were lower, and two were higher, but all were 10 percent or above, with the average being about 14," Janssen said. "That's a pretty major finding." Other findings include:

The statewide average values of rangeland and tame pasture increased 16.1 percent and 14.8 percent respectively, making 2007 the fifth consecutive year of double-digit increases.

Hayland values averaged $875 per acre statewide as of February 2007, a 15.4 percent increase from a year ago. The strongest increases occurred in the north-central region and in all eastern regions (from 17.2 percent in the north-central region to 23.7 percent in the northeast), while all other regions had single-digit rates of increase. The north-central region averaged $750 per acre, while the northeast region averaged $1,028 per acre. Rentals: Cash rental rates also increased statewide, with averages of a $3.85 per acre for cropland, $1.55 per acre for hayland and 60 cents per acre for pasture and rangeland. That's a 6.3 percent average increase for cropland, 3.9 percent for hayland and 3.6 percent for rangeland. In general, cash rental rate increases were greatest in the same regions where the strongest land value increases were reported. In 2007, the statewide average gross rate of return, or rent-to-value ratio (gross cash rent as a percent of reported land value) is 4.9 percent for nonirrigated cropland, 4.8 percent for hayland, 4 percent for rangeland and 4.4 percent for all agricultural land. The north-central region averaged 4.9 percent; the northeast region averaged 4.6 percent. Respondents were also asked to estimate net rates of return. Average net rates of return are 4.2 percent for nonirrigated cropland, 3.9 percent for hayland, 3.4 percent for rangeland and pasture and 3.8 percent for all agricultural land. This is the third consecutive year that average net rates of return for all-agricultural land were below 4 percent. The north-central region averaged 4.4 percent; the northeast region averaged 3.8 percent. Rent jump expected: During the 1990s, SDSU's report showed cash rent values increasing almost in lockstep with land values, Janssen said. Since 2001, cash rent values have been increasing half as fast as land values. However, Janssen said he anticipates a jump in cash rental prices soon. "I anticipate upward pressure on cash rents this following year, but so far this year, our numbers don't show it," Janssen said. "They showed the typical 5 to 6 percent increase that we've been seeing. That surprised me." He said that might have been a sort of delayed reaction from the corn price bump. "If corn prices stay as good as they are, you may get landlords clamoring for more," Janssen said. "It's very unusual for commodities - corn and soybean prices - to rise during harvest time. Some of that was not factored into cash rent negotiations." Ethanol effect: Most of the returns the past six years has been capital appreciation rather than cash returns, Janssen said. "That makes it hard for those who use land for their living," Janssen said. "...Of course, at retirement, if they sell the land, they'll reap the gains at that time if prices stay up." Ethanol is absolutely one of the contributing factors to the land value increase, Janssen said. The increase in capital appreciation means there has been an overall increase in investor interest on land and an increase in nonfarmer (including former farmers) purchases of land. "If there's that many other people in it, that raises the bar, if you will, for new farmers or existing farmers to get that land purchased," Janssen said. "That's something that's clearly picked up in last 15 years. The dominant buyer in most areas of the state is still the farmer expanding operations, but he or she has more potential competition." Jim Thorpe of Thorpe Auction Service in Aberdeen said the majority of farmland in this area is still bought by local farmers. He said out-of-state buyers are more likely to buy hunting land. Increases expected to continue: Ninety percent of survey respondents who provided forecasts expect land values to increase in the next year, the highest proportion in 17 years of survey reports. Most other respondents expect no change; only 1 percent forecast a decline in land values next year. Local voices: Thorpe said land values everywhere around the area are selling far above actual production value. A piece of land south of Bath sold this spring for $3,600 per acre to a local, adjacent landowner, Thorpe said. "That has to be some kind of record for Brown County," he said. "It's just astronomical. ... That's Iowa prices." Merlin Worlie, a partner with Jark/Worlie Auction Service in Aberdeen, said the company does not keep specific numbers, but agreed land prices around the area have been strong. "It makes no difference whatever area you go to," Worlie said. "Farmland, pastureland, it's all up." Thorpe said land values continue to surprise him. "This land, I didn't think it could get any higher three years ago, and here we are," Thorpe said. "But we are in a different market, a global market. It doesn't have to be another local person, it can be someone over the Internet...The unknown is 'Will there be $4 corn next fall?' It's a big gamble." The full report can be found online at http://agbiopubs.sdstate.edu/articles/C272.pdf. Paper copies are available at county Extension offices, and there is no charge for a copy of the report. MARKET SURVEY See RATES, Page 94F Of the Of the 22 million acres of alfalfa grown in the U.S. , estimates are that only about 200,000 acres were Roundup Ready-- about 0.01% of total. 42nd Year No. 10 Friday, June 22, 2007 Antiques 79F Business Notes 97F Crop Weather 77F Farmer to Farmer 115F Horse Forum 113F Hortiscope 90F Livestock Marketer 116F Market Adviser 4F Jerry Nelson 66F Outdoors Forum 110F Rural Reflections 2F Wheels 38F